According to the 2024 Report to the Nations by the ACFE (Association of Certified Fraud Examiners), organizations lose 5% of their revenue to fraud annually. That equates to a more than $5 trillion loss to fraud globally every year. And while we tend to hope that this kind of thing is happening somewhere else instead of in our backyard, the bulk of this fraud isn’t occurring overseas. In fact, the US and Canada are responsible for 38% of all reported fraud cases worldwide, which gives them the unfortunate distinction of leading the world in fraud.
We’ve known for years now that business fraud is on the rise dramatically across most categories. According to the ACFE, asset misappropriation schemes are the most common but least costly, while financial statement fraud is the least common but most costly. Falling somewhere in the middle of both spectrums are other forms of business fraud like billing schemes, check and payment tampering, and theft of non-cash assets. But there are also far more sophisticated fraud schemes emerging these days as well. A Cybersecurity Dive article from earlier this year revealed a new startling trend – the uptick in financial scams using deepfake technology. While this may sound more like Sci-Fi movie than a business news headline, consider the fact that a recent report by Deloitte speculated that fraud losses may hit $40 billion by 2027 due to generative AI magnifying the risk of banking fraud.
At this point, it isn’t a question of whether your organization will become a target of fraud anymore, but when. Of course, that begs the question: How are you protecting your organization from fraud?
How CFOs Mitigate Fraud Risk
Are you appropriately leveraging your CFO to provide the oversight needed to prevent business fraud? Find out what role a CFO should play in preventing fraud across today’s changing business landscape:
Provide Strategic Leadership
The best CFOs will lead by example, promoting a culture of high ethics and transparency and championing ongoing fraud training initiatives. They will treat risk mitigation as a top priority out of a genuine commitment to ethical practices, not an obligation to meet compliance requirements or stakeholder expectations. Additionally, they will exhibit a desire to stay informed of the latest threats to the business so they can lead well even as the business landscape around them continues to evolve.
Oversee Risk Management Efforts
CFOs should oversee the organization’s overall risk management efforts, assessing current risk and using predictive analytics to forecast potential risk. Often, they will also manage the use of data analytics to identify patterns that could indicate fraudulent activities are occurring. Where fraud is suspected, they will supervise the investigation that follows.
As part of their ongoing efforts, they will develop a comprehensive framework to manage risk, collaborating with other departments that should be involved in these efforts, including IT, legal, and HR. With the right framework in place, they will regularly audit the organization’s risk management efforts to look for areas where risk can be further minimized.
Strengthen Financial Controls
As the head of accounting and finance, the organization’s internal accounting controls will be under the purview of the CFO. Consequently, a CFO will review all existing controls (especially segregation of duties, reconciliations, and approval requirements) to ensure they are in place and being maintained at all levels. Additionally, they will implement controls where they are lacking, paying particular attention to financial controls that aim to combat some of today’s biggest fraud threats.
Oversee Governance and Compliance
As always, CFOs must ensure organizational compliance with all relevant financial regulations and standards. However, CFOs that have a strong commitment to risk mitigation will also lead due diligence efforts for new vendors, suppliers, and partners to ensure proper governance over these areas. Finally, they will report to key stakeholders (such as the CEO, their Board of Directors, and investors) on anti-fraud initiatives and their effectiveness. Top CFOs will ensure this is a two-way dialogue, answering questions that arise, listening to feedback, and taking the proactive actions needed to keep their organization protected in the future.
Take the Next Step
If you recognize the risk that today’s evolving business landscape poses but don’t yet have a CFO at the helm of your organization to help navigate it, let us know! We offer outsourced CFO services to small and mid-sized companies that want all the benefits of having a CFO without the price tag of employing someone in the role in-house. Our team of consulting CFOs has vast experience across industries and business stages to provide the right fit for your needs. Contact us today for more information!
